The Senate has rejected the Rudd government’s Carbon Pollution Reduction Scheme today. By all accounts it will be be reintroduced and then passed with amendments. The problem with the scheme is that it is a magic pudding. A government inspired price hike will lead to less carbon consumption, greater innovation, compensation for polluters and low-income households, and all this will be paid for with a ‘tiny’ reduction in economic growth over the next century. In the process a whole bunch of ‘green jobs’ will be generated. When described in these terms it is hard understand what the fuss is all about.
Afterall, the Australian economy has survived a generation of economic reform that threatened to destroy jobs; yet wholesale job destruction has not happened and Australians have enjoyed a long period of economic growth and prosperity. But there is a fundamental difference between previous economic reforms pursued by the Hawke, Keating and Howard governments and the current reforms. Previous Australian governments had proposed to make the economy more efficient. This government proposes policies that will make the economy less efficient.
Renewable sources of energy are hardly new. Windmills, for example, have been in use for hundreds of years. In some applications they are very useful, but they simply cannot compete with modern power generators in price and reliability for the base load power requirements of an industrialised economy. Increasing the price of a ubiquitous input such as power will increase the cost structure of the entire Australian economy.
The debate hasn’t really considered the costs of this policy objective. To a large extent we have simply been told that the costs of inaction are higher than the costs of action. But a detailed discussion of what that actually means is missing. On a recent episode of ABCs Insiders David Marr suggested that the government be blunt about its policy:
Ultimately Australians respect people for saying it as it is. … But [Rudd] should be saying things bluntly, you know ‘Doing something about global warming means there will be lots of jobs lost in mining because its about burning less coal’. Saying it bluntly.
Yet, the government hasn’t said anything of the sort — it has said lots of green jobs are going to be created. It is a leap of faith to suggest that the government can create jobs that add as much value as those that will be lost. If they could do so, why haven’t they done so already?
The bottom line is that the federal government has no idea what the employment consequences of its climate change policy will be. The Treasury modelling of the policy included no employment modelling. The modelling assumes that there might be some unemployment in the short run (up to ten years) but there is no unemployment in the long-run. The Treasury have to assume that real wages will fall ensuring that labour markets clear and there is no involuntary unemployment. In other words, the government doesn’t know what will happen to employment, they simply assume that it won’t be a problem.
The proposed climate change policy is multi-generational — the modelling forecasts growth to 2050, and the policy is expected to extend beyond that date. That is 40 years into the future, and beyond. The average Australian might only have a working life of 40 years, so it is somewhat disingenuous to suggest that there might only be some unemployment is the ‘short run’. Even if the ‘short run’ is ten years, the social dislocation costs of unemployment for up to a quarter of an expected working life must be horrendous. A policy that may well generate a large cadre of long-term unemployed should not be introduced with a wave of the hand and a ‘she’ll be right mate’ attitude.
Careful and serious consideration should be given to the employment consequences of the CPRS. At present that modelling either does not exist or the government has not released it to the public — either of those possibilities should make Australians very nervous about their job prospects.
Sinclair Davidson is professor in the School of Economics, Finance and Marketing at RMIT University and senior fellow at the Institute of Public Affairs.